I’m an investor with New Atlantic Ventures, where I help launch early-stage companies that have new technologies and new takes on how to win in business. I’m inspired every time entrepreneurs prove there’s a better way to solve big problems, make life better or disrupt comfy clubs. I'm skeptical, however, when start-ups get too trendy or raise too much money before the business is proven. Before becoming an investor, I had a great run building Boston Consulting Group’s Technology, Media, and Telecommunications Practice. Away from work, I ski, mess around in boats, spoil my grandchildren, and tinker with digital toys.

The U.S. Does Not Have A Debt Problem ... It Has A Health Care Cost Problem

That’s not my line, I took it from The Economist, but it’s a good one. If health care costs were under control, i.e. growing no faster than the economy, we could manage our debt. However, health care spending is growing at about 1.5x the rate of growth of GDP and is already close to 20% of the economy. In this post I will talk about the scary numbers. In the next post I will offer some thoughts on what we can do manage the situation.

If the trends of the last 20 years continue, health care spending will eat up U.S. GDP in our children’s lifetimes. See the first chart. The blue line is the federal government’s projection of health care spending. The red line projects spending at the trend growth rate of the last 20 years.

Health care spending will eat up the federal government’s budget even sooner, and that is the root cause of the U.S. sovereign debt problem. The second chart shows projected federal spending on health care as a percent of GDP rising from 5% today to about 18% of GDP, leaving no room for social security, defense, or any of the other federal government roles. In 2012 the entire federal budget is about 24% of GDP, up sharply from 20% before the financial crisis. If this forecast comes to pass, either taxes will rise to Swedish levels, or the U.S. will be a junk-quality sovereign credit like the European “PIGS”.

Graph via Fidelity.com

What impact will the 2010 federal Affordable Care Act (the “ACA”) have on this? Recent analysis of health care reform in Massachusetts reaches ominous conclusions. In 2006, Massachusetts adopted health care reform which strongly resembles the ACA: it created near universal insurance coverage, set minimum standards for health insurance, mandated that employers offer insurance and individuals must have it, and created a health care exchange. Mass health reform was “lite” on cost saving measures, however. It’s been a great success in bringing almost all residents of the Commonwealth into the health care system (>97%), and Governor Patrick, a close ally of President Obama, points out that the impact on the state budget has been a manageable 1 percent increase in spending.

The Beacon Hill Institute, an affiliate of Boston-based Suffolk University, examined the growth rate of total health care spending in Massachusetts since 2006 compared to the national trend. They included both the spending born by the state budget and other forms of spending: federal health care transfers to the state, direct federal spending (i.e., Medicare), and private insurance. This analysis developed a very different perspective:

1. Every major category of health care spending in Massachusetts grew significantly faster than the national average in the five years following health care reform: state spending, direct federal spending, and private insurance rates. Emergency room utilization increased, despite greater access to primary care physicians. Massachusetts is now one of the highest health care cost regions in the U.S.

2. The modest impact on the state budget is mostly due to the federal government’s decision to expand its Medicaid reimbursements in line with the expansion of coverage in Massachusetts; in other words, the federal government paid for almost all of the state’s increased cost. Kudos to the state’s politicians for bringing dollars home from DC. If the federal subsidy were to be reduced, however, the state would be in trouble, and I wonder if the federal government can be so generous on a national scale.

3. BHI attributes the surge in costs to several factors: more demand for medical services versus concentrated and slow-to-expand supply caused prices to rise; the law mandated additional coverages in private insurance; and the reform act lacked significant cost-containment features. There was significant savings in payments to hospitals for treatment of the uninsured, but this savings is overwhelmed by the other costs.

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Hell, at the moment,health care threatens to grow to consume the entire economy of not just the United States, but most of the developed world. If you want to use your go to example of Europe, they too face rising health care costs. Check our “Penny Medical” to read articles on how to save money on health insurance.

So, how about if all of those free loaders getting a job and stop sponging off the rest of us. They should pay for their own health insurance. Whatever happened to “If you don’t work, you don’t eat.”? The pursuit of happiness wasn’t supposed to mean taking my money to make those bums happy.

It’s not taking ALL of “your money to make those bums happy” it’s investing in a safety net. If your ass hit rock bottom tomorrow, I am sure you would like to have healthcare insurance until you got back on your feet. I think that making a frail generalization that all of these people are “freeloaders” and “spongers” is not rational.Some may not have access to those resources that you and I have despite having a job or a college degree. It’s not like well have to be paying a 200$ premium along with what we pay for our own. Just an investment to ensure we can “pursue” that happiness we are ALL so entitled to.

Personally, I believe that in a decent society (the one I want to live in) every member should have access to decent health care, and every member should be accountable for doing what s/he can do to remain healthy, and for consuming health care resources wisely. That will mean that the more fortunate and/or successful members of society subsidize the costs for the others.

How about preventative maintinence? Instead of promoting healthcare solutions that work on fixing symptoms of major problems, taking more responsibility as a society around the factors that contribute to poor health will be our only hope. ACO’s will help push this topic, as they will guide doctors into decisions that get their patients well, permanently. Exercise and proper nutrition are key – and the challenge is for mainstream Americans to jump on that bandwagon instead of the status quo.

“The U.S. Does Not Have A Debt Problem” 16 trillion in debt.. not a problem at all.

An alarming percentage of the US’s GPD is from domestic spending on Health services. Wouldn’t a shift to stimulate national industrial production be part of the solution to all of this? Promoting jobs, consequently more capital for Americans, helping reduce the deficit. There is Debt because the money stimulating consumption and heating the market, is originated from.. debt.

We all want to have the best health care available to us when we need it. That lesson came home to me when I had my first serious illness (hepatitis) at age 37. Demand for health care is rising as more therapies are invented and the population ages. But productivity does not increase much. So I think the answer has to be to make health care more productive. That will free up resources for other things, such as investment in capacity to produce other products.